Cross-Border M&A’s by Chinese Acquiring Firms.
The influence of Cultural Distance and Prior International
Experience
Master Thesis, MSc. IB&M.
University of Groningen, Faculty of Economics and Business.
June 21, 2017
Arjen de Vries Student number: 2575434 e-mail: a.de.vries.46@student.rug.nl
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ABSTRACT
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Table of Contents
INTRODUCTION ... 4 LITERATURE REVIEW ... 6 Cross-Border M&A’s. ... 6 Cultural Distance ... 8 International Experience ... 11 CONCEPTUAL MODEL ... 12 METHODOLOGY ... 12 Data Collection ... 12 Sample ... 13 Measurement of variables ... 13 Control Variables ... 15 RESULTS... 17 Descriptive statistics ... 17 Regression analysis... 19DISCUSSION AND CONCLUSION ... 21
LIMITATIONS AND FUTURE RESEARCH ... 23
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INTRODUCTION
The advancements in transportation and telecommunication have facilitated the expansion of firms beyond their home country borders and allowed them to operate on an international level (Oviatt and McDougall, 2005). Through international expansion firms now have the possibility to tap into new markets and acquire technological capabilities and knowledge from firms overseas (Song, Asakawa and Chu, 2011). Firms have several options when they choose to expand beyond their borders. The first option is to create a new facility and build it from the ground up, which is also known as greenfield investments. However, the most common method for international expansion is through cross-border mergers and acquisitions (M&A’s) (Reus and Lamont, 2009). Furthermore, countries have different national cultures and these are reflected in the countries’ firms. This means that firms dealing with cross border M&A’s must also deal with the cultural differences between the two firms involved. This brings about several issues which will be explored in this thesis.
Previously most of worldwide foreign direct investments (FDI) was done by firms located in developed countries and mostly flowed to developing countries. The World
Investment Report 2014 shows that in 2000 only 12% of worldwide FDI was done by
developing countries. However, by 2014 the outflow of foreign direct investment (OFDI) by developing countries increased significantly and grew to 39% of worldwide FDI (UNCTAD, 2014). This trend shows that developing country firms are now increasingly becoming global market players. FDI between developed and developing countries is no longer as one-sided as before and has even reached the point where developing country firms are acquiring major western companies.
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Several studies (e.g. Tao, Liu, Gao and Xia, 2017; Reena, 2013) found that cross-border M&A’s increase the value of the firm’s stock when the announcement of such a deal is made, but post-acquisition performance seems to drop. Generally, cross-border M&A’s do not enhance the long-term value of the firm (Tuch and O’Sullivan, 2007). A common explanation in the literature for cross-border M&A performance is the cultural distance between the acquiring and the target firm (Chakrabarti, Gupta-Mukherjee and Jayaraman, 2009). Reus and Lamont (2009) state that cultural distance hampers communication and understanding between the acquiring and target firm, which results in negative post-acquisition performance. Similarly, Zhou, Xie and Wang (2016) found that cross-border M&A’s involving a developing and developed country had a much higher failure rate due to the potentially unfamiliar and uncertain environments these firms face. However, there has not yet been conclusive evidence for the negative effect of cultural distance on cross-border M&A performance. There have also been authors that found that cultural distance positively influences cross-border M&A performance. For example, Chakrabarti et al. (2009) argue that cultural distance has a positive effect, because cultural differences are so apparent that firms are informed on possible difficulties before the deal. Therefore, they will make sure that cross-border M&A’s involving high cultural distance will only materialize if substantial economic potential can be realized. Furthermore, Morosini, Shane and Singh (1998) argue that cross-border M&A’s in culturally distant countries provide the acquiring firm with a new set of diverse routines that are embedded in the target firm’s national culture.
While there has not yet been conclusive evidence for either a positive or negative effect of cultural distance, the current literature shows that prior international experience positively influences cross-border M&A performance. Dikova and Sahib (2013) found that firms engaging in subsequent cross-border M&A’s were paired with better performance, because firms learn from their previous experiences. This indicates that prior international experience might moderate the relationship between cultural distance and cross-border M&A performance as firms learn how to deal with cultural distance.
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experience moderates the relationship between cultural distance and cross-border M&A performance. This brings me to the following research question:
In what way does cultural distance influence the acquisition of developed country firms by Chinese firms and does prior international experience by Chinese firms moderate this relationship?
This thesis contributes to the current literature by studying the effect of cultural distance on cross-border M&A performance in a different setting from most other prior studies (e.g. Morosini and Singh, 1998; Dikova and Sahib, 2013; Boateng, Du, Wang, Wang and Ahammad, 2017). Many of these studies have been conducted from the perspective of firms in developed countries. In the cases where the study has been conducted from the perspective of developing countries, it did not look at developing country firms targeting firms in developed countries specifically. Furthermore, this thesis also includes prior international experience as a moderator.
This thesis is structured as follows. First the relevant literature and theories are introduced, followed by the hypotheses. Second, the applied methodology is explained. Third, an analysis of the data is provided. Finally, I present a discussion containing the results and its relation to prior studies, a conclusion and the limitations of this thesis.
LITERATURE REVIEW
Cross-Border M&A’s.
The most common method of international expansion is through cross-border M&A’s (Reus and Lamont, 2009). Motivations for acquisitions overseas may differ. Developed country firms wish to exploit their current assets in a new market, whereas developing country firms wish to acquire knowledge and capabilities they lack themselves (Wang et al., 2016; Makino et al., 2012).
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a competitive advantage, because they do not have all the characteristics as explained by Barney (1991). Capabilities, intangible and proprietary resources are also tacit in nature which means that they cannot be simply transferred through market transactions (Gupta and Govindarajan, 2000; Boateng et al., 2017). M&A’s provide firms with an opportunity to acquire such non-marketable resources that lead to a competitive advantage (Wernerfelt, 1984).
According to Luo and Tung (2007) emerging market multinational enterprises (EMNE) utilize these cross-border M&A’s to obtain critical resources such as advanced technology, managerial expertise and access to consumers in key foreign markets. EMNE’s are usually latecomers with inferior technology, brands and other intangible and tangible resources (Li, Li and Wang, 2016). Due to their latecomer status on the global market they are quite aggressive in their international expansion and opt for high-risk, high-control acquisitions and try to buy themselves into already established brands (Luo and Tung, 2007). This way they try to compensate for their latecomer disadvantage. According to Popli and Kumar (2015), firms in developing countries are facing increasingly more competition in their domestic market, because large global rivals are now also competing with them. To be able to compete with these large global rivals, EMNE’s are seeking to obtain strategic assets that allow them to close this competitive gap. If they wish to close this gap rapidly, they target firms from developed economy countries because these firms hold higher quality resources (Gubbi, Aulakh, Ray, Sarkar and Chittoor, 2010).
Firms are motivated to engage in cross-border M&A’s when synergetic effects can occur (Kim and Jung, 2016). These synergetic effects are the result of complementarities between the acquiring and the target firm and lead to additional value over the sum of the two firm’s individual values (Kim and Jung, 2016). In the case of China, the overall low-cost conditions paired with the assets, reputation, knowledge and other intangible resources that developed country firms provide, such synergetic effects that add to their competitive advantage can be achieved (Popli and Kumar, 2015). A study by Gubbi et al. (2010) found support for this notion. They saw that Indian EMNE’s had higher returns when they targeted firms from developed countries.
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a deep and common ground of understanding between the acquiring and target firm (Ambos and Ambos, 2009). When the acquiring and target firm are from two culturally distant countries, this deep and common ground of understanding may not exist. Hofstede (2001) states that national culture influences the way people view the world and this could then negatively influence the common ground of understanding. The ability to effectively transfer and receive knowledge is then limited (Kedia and Bhagat, 1998).
Cultural Distance
Hofstede (1980) has defined culture as the collective programming of the mind which distinguishes the members of one human group from another. Cultural distance can be defined as the degree in which national cultures are different from each other (Shenkar, 2001). Hofstede (2001) created a framework based on four dimensions that classify certain characteristics of national cultures. These dimensions can be used to measure the cultural distance between two countries. The first dimension he created is the ‘Power Distance Index’ (PDI). He defined this dimension as the degree in which less powerful members of a society accept and expect that power is distributed unequally. When the Power Distance Index is large, society accepts a hierarchical order, whereas societies with a lower Power Distance Index strive for equality and demand justification for inequalities of power. The second dimension is ‘Individualism versus Collectivism’ (IDV). He argued that in individualistic societies, individuals are expected to only take care of themselves and their immediate families, while in collectivist societies individuals are part of a particular in-group and members of such a group are expected to take care of each other. The third dimension is ‘Masculinity versus Femininity’(MAS). In masculine societies people have a preference for achievement, heroism, assertiveness and material rewards for success and society is more competitive. On the other hand, feminine societies prefer cooperation, modesty, caring for the weak, quality of life and society is more consensus-oriented. Finally, the last dimension is ‘Uncertainty Avoidance’ (UAI). He defined this dimension as the degree in which members of a society feel uncomfortable with uncertainty and ambiguity. Based on these dimensions cultures from different countries can be characterized and compared with each other.
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(e.g. Wang et al., 2016; Huang, Zhu and Brass, 2016). Morosini et al. (1998) argue that culturally distant countries have a different set of routines that are embedded in their national culture. Through the acquisition of culturally distant firms, the acquiring firm can tap into that knowledge. They can then apply this knowledge in their home country to obtain a competitive advantage. In a similar vein, Slangen and Hennart (2008) argue that culturally distant acquisitions have an important advantage, because they bring novel practices and knowledge to the acquiring firm. Moreover, from an organizational learning perspective, Chakrabarti et al. (2009) argue that cross-border M&A’s between culturally distant countries can spur innovation and learning by breaking rigidities. They also argue that, when there is cultural distance between the two firms involved, it is very likely that managers are aware of potential difficulties before the deal. They will then keep this in mind and adapt to the situation through stricter criteria and only let deals come to fruition if substantial economic potential can be realized.
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might undermine their confidence when business is being conducted outside of China (Dietz, Orr and Xing, 2008). Cultural distance could then impede the acquiring firm’s ability to obtain the strategic assets from the target firm due to inefficient transfer of knowledge.
Firms that begin to operate in a previously unfamiliar environment also have to deal with the liability of foreignness (LOF). LOF can be defined as all additional costs a firm operating in a market overseas incurs, that a local firm would not incur (Zaheer, 1995). These costs can rise from either the spatial distance, unfamiliarity with the environment, the lack of legitimacy or costs from the home country environment. Contractor, Kumar and Kundu (2007) argue that firms expanding in a new, unfamiliar and foreign environment will incur significant learning, coordination and set up costs that, for a while, will exceed the benefits of expanding into the foreign market. Similarly, Goerzen and Beamish (2003) argue that the more dissimilar countries are, the more difficulty the acquiring firm will face when trying to understand the local operations and demands. Datta and Puia (1995) found support for this notion, confirming in their study that a lack of cultural fit and understanding of the local market of the acquired firm leads to a decrease of value for the acquiring firm. Moreover, Brock (2005) found that cross-border M&A’s involving culturally distant firms had a harder time realizing synergies due to problems in the integration process resulting from cultural mismatches. So, it appears that acquiring firms experience difficulties when they target a culturally distant firm, because of a lack of familiarity and clashes between the two national cultures. Following this it seems likely that cultural distance will negatively influence cross-border M&A performance.
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Luo and Tung (2007) argue that EMNE’s generally have poor corporate governance because of an underdeveloped stock market in their home country. They state that this may lead to foreign stakeholders questioning the trustworthiness and transparency of the firm. Moreover, Wang et al. (2016) also argue that, as many Chinese firms are state-owned enterprises, suspicion is raised about the motivations of the Chinese acquiring firm. It is this lack of trust that might negatively influence the performance of Chinese cross-border M&A’s.
As discussed, there are both arguments for and against the positive and negative effects of cultural distance. However, considering that China is an emerging market and that several arguments presented were specific to the emerging market context and even China itself, it seems more likely that a negative effect will be seen in this case. Therefore, I come to the following hypothesis:
H1: Cultural distance negatively influences cross-border M&A’s performance by Chinese firms in developed countries.
International Experience
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with international experience led to better returns than those done by inexperienced directors. Moreover, Collins et al. (2009) found that firms were more likely to pursue subsequent cross-border M&A’s due to the experience they had gained.
So, following the organizational learning theory, acquiring firms will gain experience from their previous cross-border M&A’s. By doing so, they will be able to develop routines that allow them to mitigate the effects of cultural distance and the liability of foreignness. This brings me to the following hypothesis:
H2: Prior international experiences by Chinese acquiring firms moderate the relationship between cultural distance and cross-border M&A performance, where the more experience the acquiring firm has, the weaker this relationship is.
CONCEPTUAL MODEL
METHODOLOGY
Data Collection
To collect all the necessary data for this thesis I used several databases. The first database I used is Bureau van Dijk’s Zephyr. Zephyr is a database that contains comprehensive information of M&A deals all over the world and provided all the data of each M&A deal itself. In Zephyr, I was able to search for specific M&A deals through the many criteria that can be applied to the search such as period, deal type, geographical location of acquiring and target firm and deal status. Next to Zephyr, I have also used Bureau van Dijk’s Orbis. Orbis is a database that contains a wide variety of information related to specific companies. In Orbis, I was able to obtain the financial data needed of the firms involved in the M&A deals that Zephyr provided. Finally, I also used the website of Geert Hofstede. This website contains a database
Cultural Distance
Cross-Border M&A
Performance
Prior International
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with all the cultural dimensions scores of all the countries in the world which I used in the formula for the calculation of cultural distance between China and the target firm’s country.
Sample
In this thesis, cross-border acquisitions that were completed in the period of 2009 to 2014 (01/01/2009 – 31/12/2014) were examined. This 6-year period provided a sufficient amount of data to work with while not being of such length that many major changes have occurred in the world that might have influenced cross-border acquisitions. If a deal was to be included in the sample it had to fulfil several criteria. First of all, the acquiring firm had to be located within mainland China. The target firm had to be located within a developed country. The developed countries that I have included in my sample are, first of all the, G7 countries, namely: Canada, France, Germany, Italy, Japan, United Kingdom and the United States. I also decided to add The Netherlands and Australia to the sample as the G7 countries did not provide sufficient M&A deals on their own for a decent sample size to be formed. The type of deal had to be either a merger or an acquisition and the deal had to be completed within the specified period. Zephyr provided 72 unique deals that satisfied all conditions and had all the required financial data available in Orbis. These 72 deals were ultimately included in the sample.
Measurement of variables
Cultural Distance. To calculate the cultural distance between China and the
developed countries in the sample I used the method as described by Kogut and Singh (1988). Kogut and Singh (1988) created a formula that can be used to measure the cultural distance between two countries:
This method uses the four of the Hofstede (2001) cultural dimensions, power distance, individualism, masculinity and uncertainty avoidance. The indices on the Hofstede dimensions were obtained from Geert Hofstede’s website ("Countries - Geert Hofstede", 2017). The formula of Kogut and Singh (1988) is structured as follows. Iij represents the index on the ith
dimension and jth country, c indicates China, Vi is the variance of the index of the ith dimension
and CDj indicates the cultural difference between China and the target firm home country. This
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2009). The Hofstede (2001) cultural dimensions are also the most commonly used measure for characterizing a countries’ culture. The score resulting from Kogut and Singh’s (1988) formula indicates the degree in which two countries differ from each other on a cultural level, where a higher score means that they are more culturally distant from each other.
Cross-Border M&A Performance. There are several methods that can be used to
measure cross-border M&A performance. The most commonly used methods are either accounting-based or stock market-based. Stock market-based measures use, for example, the cumulative abnormal return as a measure for M&A performance (e.g. André, Kooli and L’her, 2004). However, such a method is based on expected returns (Schoenberg, 2006). In this thesis, I used an accounting-based measurement to assess post-acquisition performance of the acquiring firm. The benefit of such a method is that accounting-based measure is based on actual, realized performance and out of all other M&A performance measures is truly objective (Thanos and Papadakis, 2012). The specific method that I applied is the Return on Assets (ROA), which is the most widely used accounting-based measurement of M&A performance (Thanos and Papadakis, 2012). The return on assets gives an indication of how much profit a firm makes in relation to their total assets and is calculated by the net income of the firm divided by the total assets. To measure the performance of the cross-border M&A, I compared the ROA of the Chinese acquiring firm before the deal with the ROA after the deal, which has also been used in prior studies when ROA is used as a measure for M&A performance (e.g. Zollo and Singh, 2004; Porrini, 2004; Morrosini and Singh, 1994). In this thesis, I used the ROA from 1 year prior to the deal and compare it to the ROA from 2 years after the deal which leads to the following formula:
△ROA=(ROA
i,t+2−ROA
i,t−1)/ROA
i,t−115
(Thanos and Papadakis, 2012). The current literature has not yet reached a consensus on what the best period for measuring M&A performance is. Variations from 2-years periods to 10-year periods exist (Thanos and Papadakis, 2012). In this case, I have chosen for a 3-year period, because of the availability of the required financial data. A substantial number of M&A deals that were taken into the sample have been completed near the end of the 6-year period I have selected to collect data from. In many cases, the last available financial data from the Chinese acquiring firms was of 2015. Under these conditions, a 3-year period was the best fit and has also been used in prior studies (e.g. Porrini, 2004).
International Experience.To measure the international experience that the acquiring firm has, I used a method similar like the one Dikova and Sahib (2013) and Hayward (2002) used. In this method, the amount of prior cross-border M&A’s is used as a proxy for international experience. Following Dikova and Sahib (2013), I analyzed the number of cross-border M&A’s by the acquiring firm during a period of 3 years prior to the deal.
Control Variables
This thesis also contains several control variables that have shown to influence cross-border M&A performance in prior studies. This allowed me to accurately test the effects of my independent variables.
Industry Relatedness. First, I controlled for industry relatedness between the acquiring
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Size of Acquiring Firm. I also controlled for the size of the acquiring firm. According
to Roll (1986), larger firms will see fewer returns from acquisitions than smaller firms due to managerial hubris. Managerial hubris is a condition where the manager of a firm is overconfident in himself. Managerial hubris is more likely to be seen in the manager of a large firm as they perceive themselves to be more successful for reaching that position at a large firm (Jansen, Sanning and Stuart, 2015). Roll (1986) argues that managerial hubris leads to managers deciding to acquire another firm whilst disregarding the current market value of the firms involved. He states that these managers will convince themselves that their own calculation is correct. The market value, which reflects all current financial information available, must be wrong and does not contain the true potential value of the combined firm. Following this, larger firms should see worse M&A performance. In this thesis, I used the log of total assets as a proxy for the size of the acquiring firm, which is similar to the method used by Lougee and Marquadt (2004) and Daley (1984).
State-Owned Enterprises. Considering the amount of SOE’s in China, I also controlled
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RESULTS
I start this analysis with a description of all the statistics. Afterwards a correlation test is used to find any correlations between the variables. The analysis ends with a regression analysis where I have used the following model:
CBMA performance = β0 + β1 CULTURALDISTANCE+ β2 INT.EXPERIENCE+ β3 SOE+ β4
SIZE ACQUIRER + β 5 RELATEDNESS + β 6CULTURAL.DISTANCE*INT.EXPERIENCE+ε
Descriptive statistics
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Table 1: Sample Description
Target Country Frequency
Australia 5 Canada 6 France 6 Germany 19 Italy 1 Japan 7 Netherlands 2 United Kingdom 8 United States 18 Total 72
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Table 2: Mean, Standard Deviations and Correlations
Table 2 also illustrates the correlations between the variables. It shows that the correlation between the dependent variable, M&A performance, and the independent variable, cultural distance, is both negative and significant (r = -0.241, p <0.05). This indicates that the greater the cultural distance between the Chinese acquiring firm and the target firm’s home country, the more the performance of the acquiring firm decreases. Another significant correlation can be found between M&A performance and the interaction effect of cultural distance and prior international experience (r = 0.249, p <0.05). This indicates that prior international experience moderates the relationship between cultural distance and M&A performance, where the more experienced the acquiring firm is, the weaker the negative relationship between cultural distance and M&A performance becomes.
Regression analysis
Table 3 shows the four models used to test the hypotheses of this thesis. In Model 1, I have included only the control variables. Model 1 indicates that industry relatedness has a positive, but not significant effect (B = 0.754, p = 0.075) on M&A performance. The effect of SOE’s on M&A performance is negative, but not significant (B = -0.462, p = 0.338). Finally, model 1 shows that the size of the acquiring firm is unrelated and has no real effect (B = -0.015, p = 0.898) on M&A performance.
Model 2 includes the independent variable cultural distance. Model 2 also shows that the control variables have no significant effect on M&A performance. In this model, cultural distance has a negative, but not significant effect on M&A performance (B = 0.517, p = 0.063) which means that no support for hypothesis 1 is given.
Mean Standard Deviation 1 2 3 4 5 6 7 1. M&A Performance -0.3587 1.73368 1.00 2. Cultural Distance 3.9818 0.74565 -0.241* 1.00 3. International Experience 0.2222 0.58676 0.092 0.099 1.00 4. Cultural Distance x International Experience 0.989 0.95362 0.249* -0.036 -0.1 1.00 5. SOE 0.2361 0.42767 -0.106 0.096 0.012 -0.091 1.00 6. Industry Relatedness 0.6111 0.49092 0.209 -0.080 0.158 -0.038 0.041 1.00
7. Size Acquiring Firm 9.3401 1.72555 -0.020 -0.122 0.053 0.056 0.069 0.013 1.00
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Table 3: Regression analysis
Model 1 Model 2 Model 3 Model 4
R 0.239 0.324 0.336 0.421
Adjusted R Square 0.057 0.105 0.113 0.177
Control Variables
Industry Relatedness 0.754 (0.075) 0.689 (0.098) 0.635 (0.133) 0.653 (0.111)
SOE -0.462 (0.338) -0.365 (0.443) -0.361 (0.450) -0.264 (0.570)
Size Acquiring Firm -0.015 (0.898) -0.044 (0.709) -0.050 (0.672) -0.067 (0.560)
Independent Variables
Cultural Distance -0.517 (0.063) -0.543 (0.053) -0.537 (0.049)*
International Experience 0.269 (0.445) 0.343 (0.318)
Moderator
Cultural Distance * International Experience 0.468 (0.027)*
*p < 0.05
In model 3 I have included the effect of international experience on M&A performance. In this model, there is also no significant effect found for the control variables. Cultural distance also has a negative, but not significant effect (B = -0.543, p = 0.053) on M&A performance in this model, resulting in no support for hypothesis 1 in model 3 as well. Model 3 does show that international experience has a positive, but not significant effect (B = 0.269, p = 0.445).
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DISCUSSION AND CONCLUSION
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primary reason for either a positive or negative effect of cultural distance on M&A performance, it does appear to be a factor.
I also looked at the moderating effect of international experience on the relationship between cultural distance and M&A performance. I found that prior international experience does moderate this relationship. Chinese acquiring firms that have acquired other firms in a different country 3 years prior to the deal perform better than those that lack this experience. Prior international experience by the acquiring firm will limit the negative effect of cultural distance. This is in line with the findings by Dikova and Sahib (2013) who also found that internationally experienced firms performed better than their inexperienced counterparts.
For the control variables, I did not find any support, even though support for some of these variables have been found in other studies. This might be the result of my relatively low sample size or incorrectly measuring certain variables. While industry relatedness did show a positive effect on M&A performance, which is in line with findings by other studies (e.g. Slangen, 2006; Barai and Mohanty, 2014), this effect was not found to be significant in this sample. Similar results can be seen in the variable SOE and the size of the acquiring firm. Both variables showed effects that were in line with the theory, namely a negative effect, but neither variable proved to be significant.
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LIMITATIONS AND FUTURE RESEARCH
This thesis is not without some limitations. First of all, the sample size is relatively low. I started out with close to 200 unique M&A deals that Zephyr provided. However, in many cases there was no financial data available or it was not available for the years that I needed for the measurement of M&A performance. This led to less than half of the original sample size that was ultimately included. Using the Cumulative Abnormal Return method might have resulted in more deals being taken into the sample as it is more likely that data on stock price is available. Furthermore, because I used an accounting-based measure for M&A performance, some extreme outliers were also found in the sample. In one case there was an increase of over 2000% in ROA whereas the average in the sample I used was -35.87%. I had to remove these from the sample as they would otherwise have significantly influenced the results of this thesis. In the end, the sample included only 72 M&A deals. The result of such a low sample size is that the results might have little statistical significance. This might have been the result of Chinese firms only acquiring firms in developed countries very recently.
In future research, it is likely that more cross-border M&A deals have occurred resulting in a bigger sample size with more statistical significance. In the meantime, future research could use more qualitative methods of research where a smaller sample size can be used. Bresman, Birkinshaw and Nobel (1999) used two qualitative methods in their study on international acquisitions. They both case studies and sent out questionnaires to several firms. Using these methods, they wished to find out how the transfer of knowledge between an acquiring and target firm from different countries was influenced. They asked employees about their opinions, perceptions and impressions of various work practices of the firm. A similar method can be used for cultural distance. This way it can be found out how cultural distance influences are perceived by the employees and if performance is affected by cultural distance according to them.
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international experience. In his study, he measured international experience not only through the number of prior cross-border M&A’s, but also included prior activity in the target country through licensing, exports, sales subsidiaries, manufacturing or service subsidiaries, or other means.
Cultural distance was measured through Hofstede’s (2001) dimensions. This method has been receiving an increasing amount of criticism and some scholars have started using alternative methods for measuring cultural distance. The GLOBE model by House et al. (2004) has built on Hofstede’s (2001) dimensions and is based on a collaborative effort by researchers all over the world. Future research could use the indices created by House et al. (2004), while using the same formula for cultural distance between two countries by Kogut and Singh (1988). Dikova and Sahib (2013) applied this method in their study instead of Hofstede’s dimensions. They argued that the GLOBE model was designed out of constructs and scales that were more comprehensive.
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